Letters From The Earth

Got wood?

March 15, 2010

Before I begin a two part series on pellets for energy, I'd like to take one last parting shot at the black liquor funding paid to the paper industry in 2009. I promise, my last comment on the subject.

The United States government paid out about $8 billion in black liquor funding. That's right, $8 billion, not million, to 40 pulp and paper mills to emphasize virgin output. Below is a list of the top 10 black liquor funding recipients. This is funding that was paid out by the US Internal Revenue Service as part of alternative fuels tax credit legislation. Since the industry has been burning black liquor for energy for almost 100 years, I never quite understood how the practice qualified for credit as an alternative fuel. Wow, how messed up we get.

Here's the top 10 list:

1) International Paper $2,000,000,000
2) Georgia-Pacific 1,020,000,000
3) Smurfit-Stone 560,000,000
4) Domtar 495,000,000
5) Mead Westvaco 385,000,000
6) Weyerhaeuser 320,000,000
7) New Page 310,000,000
8) Abitibi Bowater 285,000,000
9) Verso Paper 235,000,000
10) Temple-Inland 215,000,000

Total for Top 10: $5,825,000,000
Total Credit: $8,268,000,000
% Share of Total: 70.5%

I have a lot of friends (maybe enemies now) in the paper industry, and some with the above list. Most of them know my views. The bottom line is that this credit created an artificial parachute for weak mills and weak companies. Many mills needed the credit so badly that they switched from using secondary fiber to virgin fiber where the liquor is generated. (Thank goodness for the Chinese as they picked up the slack in the secondary markets as 2009 unfolded!). This government credit intervention allowed some mills, not necessarily the above, to continue to operate when they couldn't be competitive. I guess this is a chronic political problem: The government just has to get its fingers into everything. The Canadian paper industry, already on its knees in 2008 and into 2009 because of market and exchange rate problems, responded with its own tax credit. However, to earn the credit in Canada, companies had to improve their environmental performance. To me that's a much more fitting answer to financial assistance. OK, enough.

The humble pellet

To be sure, black liquor is an alternative fuel. I just don't think it is deserving of a tax credit at the expense of secondary fiber. Again, the practice of using black liquor as fuel is almost 100 years old. Interest in wood pellets, on the other hand, has only really grown in demand since the 1970s, and I think it qualifies much more easily as an alternative fuel.

In both Canada and the USA, the recent growth in demand has been caused by increases in the cost of fossil energy. Coal and oil will not get cheaper. Sand oil in western Canada is not the answer, in my view. Pellets, whether wood or industrial, could very well be part of the answer. Surely, the industrial pellet is an excellent alternative to landfilling pressure sensitive label waste. In this column I'd like to give you a brief explanation of the wood pellet. In my next column I will focus on an in depth study of the industrial pellet and why it represents an excellent alternative to landfilling. I would be remiss if I didn't give credit to Justin Burley, president of Greenwood Fuels. We were discussing pellet volumes and Justin believed that my numbers were incorrect. He sent me a report by Henry Spelter, an economist at Madison's Forest Product Lab, a division of the US Department of Agriculture, Forest Service. I am quoting liberally from Spelter's report.

Wood has always been the primary source of non-food energy for people all over the world. Over the years, demand has ebbed as other alternatives have provided easier and cheaper solutions. Nevertheless, as the cost of other energy sources has increased, the interest and use of wood has increased dramatically. Today there is another driver: sustainability. Countries and companies want to limit carbon dioxide emissions. The beauty of using wood for energy is that it is carbon neutral. New tree growth recaptures carbon released from burning.

If wood is burned to produce electricity, half of the embedded energy is lost, unless waste heat is captured, which seldom happens. Also, there is a very large capital expense that really can't justify the process. Burning wood pellets, on the other hand, is much more energy efficient. Modern stoves use 85 to 95 percent of the energy for heat, and when electricity is displaced the savings in fuel is enormous.

Wood, by itself, has low energy density, contains half its weight in water, and is very costly to transport and handle. Pellets improve all of these issues. When you densify the wood by pelletizing it, the energy content is increased to almost the same level as coal. The moisture content is lowered from 50 percent to less than 10 percent. This obviously enhances the heat value. With less moisture, pellets burn hotter, more completely, and thereby reduce harmful emissions. Densification also improves the cost of transportation. Yield increases dramatically. Finally, material handling is simplified by size reduction, which enables automated feeding of heating units, unlike the manual feeding that a fireplace requires.

Wood pellets really took off in the 1970s. A product called Woodex made from sawmill residue was sold as a waste-derived fuel that could be interchanged with coal. The company that made Woodex failed, but the concept of using wood pellets as fuel continued to grow. Now, the cost of fossil fuel, interest in sustainability, and using renewable fuels have continued to raise interest and awareness in wood pellets. I've seen the same cycle in industrial pellets. Many companies that started in the 1970s and 1980s failed. But with the above drivers, interest and use is finally causing growth.

Since 2000, the cost of fossil fuel has risen steadily. The European Union has a goal to make 20 percent of its energy needs from renewable sources by 2020. It is doubtful that there are enough wood sources in Europe to meet this goal, hence the interest in using wood pellets manufactured in both Canada and the US.

There has been huge growth and investment in wood pellet manufacturing. Demand continues to grow and, while there will be hiccups in this relatively new industry, I believe it is here to stay. Indeed, there is a large wood pellet manufacturing operation within three miles of our plant in Wisconsin. These folks have expanded several times in the last several years to meet demand. In my view, a logical progression from wood pellets to industry pellets makes more sense than ever because of economic and environmental issues. I look forward to presenting that story in my next column.

Another Letter from the Earth.
Calvin Frost is chairman of Channeled Resources Group, headquartered in Chicago, the parent company of Maratech International and GMC Coating. His email address is cfrost@channeledresources.com.

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